The IOOF Holdings Limited (ASX: IFL) share price will be on watch this morning after the release of an announcement.
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What did IOOF announce?
This morning IOOF announced that it has made changes to its arrangements with external platform providers.
According to the release, effective yesterday, IOOF and Westpac Banking Corp (ASX: WBC) have agreed to terminate the existing relationship agreement between IOOF and Westpac's BT brand.
IOOF's CEO, Renato Mota, commented, "IOOF and BT worked collaboratively to reach agreement with regard to the future of our arrangement. As IOOF embarks on its own platform simplification strategy, alignment with providers who fit within our open architecture approach will be key to continuing to enable choice for our clients."
The release explains that IOOF's agreement with BT included termination rights for both parties on 12 months' notice. It also provided IOOF with the right to unwind the current arrangements and transition clients and funds to other providers.
However, the latter option was ruled out by management. It estimated that the cost of such a transition from BT would cost IOOF between $30 million to $70 million. When combined with anticipated customer attrition, this strategy was deemed unattractive.
What now?
IOOF has entered into an agreement with HUB24 Ltd (ASX: HUB).
Subject to trustee and service operator approvals, under this agreement, HUB24 would act as the platform administration and custody provider and IOOF and HUB24 would collaborate to develop a range of solutions.
This includes private label super and investment products with IOOF entities as the responsible governing entities.
Mr Mota commented: "The new partnership arrangement with HUB24 is a positive step forward for IOOF. We continue to focus on our proprietary Evolve platform however, it is important that we continue to work with partners whose long-term business strategy and ability to enable choice aligns with our own."
Financial impact.
In a separate announcement, Westpac advised that to avoid complex, costly, and time-consuming separation provisions, the bank will pay IOOF a one-off amount of $80 million.
However, as the agreement will see BT continue to provide platform and related services to clients and advisers including those with a relationship with IOOF, Westpac expects the one-off amount to be partially offset by other net platform revenues.
As for IOOF, it expects its FY 2021 revenue to decrease by approximately $15 million pre-tax on $18.8 billion Funds under Advice as at 30 November 2020.
